We're Stuck Until We're Not

JC Parets
March 30, 2019

From the desk of Tom Bruni @BruniCharting

It's been about three weeks since I wrote this post looking at breadth across various Equity markets since January 2018.

JC wrote a post today about "The Cards We've Been Dealt" which references some of these stats, so I wanted to update some of them and highlight another way we use them to measure breadth.

First let's start with the sectors and subsectors. Performance year-to-date and since the December lows remains overwhelmingly positive, however, only 16 of them are positive since the January 2018 highs in the S&P 500. A slight improvement, but nothing to write home about.

Click on table to enlarge view.

How can the broader market make a sustainable move higher without the majority of its sectors breaking out and resuming their uptrends?

It likely can't.

For our Institutional Clients we use this exercise extensively in creating detailed sector and custom reports.

Take Cloud Computing, which is trying to clear its October 2018 highs. By looking under the surface at the number of stocks participating in this rally, we can get a feel for the likelihood of a successful breakout.

So here are the stats. A tad more than half of the ETF's components are positive since then and the median return across all holdings is about flat.

This more or less confirms what we're seeing in the SKYY chart...prices struggling to get above resistance and make new highs. To get confirmation of a successful breakout, we want to see more stocks getting above their October highs. Signaling the resumption of their uptrend.

There may not be a clear directional edge in these stats now, but that's information in and of itself. With mixed evidence, we probably don't want to be pressing bets at the index level in this subsector until we get more data.

The point is, when indexes are at key inflection points, we can look to the breadth stats for clues into which way prices might resolve. And when they do resolve, we can look for confirmation or divergences from the internals.

As for US Equities, the internals are still too weak for us to see a sustainable breakout to new highs and a resumption of the structural bull market in Equities as an asset class.

If you enjoyed this and want access to all our premium content, start you 30-day risk-free trial or sign up for our "Free Chart of the Week" to receive more free research like this.

Thanks for reading and let us know if you have any questions!

Allstarcharts Team

Filed Under